Ohio Cigar Smokers Brace Themselves

It's a piece of local news that has implications for cigar smokers all over the United States. Yet another state legislature has noticed the tax-law loophole that has made cigar smokers so happy over the years--and intends to close it.

Federal and state tax laws have long favored cigar smokers--perhaps from legislators' inattention, perhaps because cigars are thought of more avorably, perhaps from cigar makers' smaller advertising budgets and lower profile. In any case, cigarettes are more likely to face high federal and state sales taxes, while cigars are often exempted from these rules.

But an Ohio state representative has proposed a tax hike on cigars, chewing tobacco, and other forms of non-cigarette tobacco, which would raise the tax rate on all of these products from seventeen-percent-of-wholesale to the fifty-five percent that Ohioans already pay on cigarettes. The representative touts possible decreases in Medicare spending as a financial benefit of the prospective law change.

A spokeswoman for Ohio's Democratic governor, Ted Strickland, has already disclaimed the governor's willingness to increase Ohio taxes. (Strickland's current budget proposal is free of any such increases, though it does create a number of new fees or fee increases.) And since the current proposal wouldn't directly address the state's budgetary woes--Representative Tyrone Yates, who proposed the tax increase, says the money should go to smoking-prevention programs instead--there's a decent chance that Ohio legislators won't want to sign on.

But the news underscores the likelihood that, in lean and hungry times, state as well as federal legislators will eye new taxes on cigars as a possible source of revenue. Given that most states face a budgetary crisis that makes the Federal Government's problems look almost easy--and that cigars are widely seen, especially by non-smokers, as a luxury item--many legislators will be viewing the gap between cigar and cigarette taxes with a critical eye.

Already, Jennifer Granholm--governor of neighboring Michigan--has proposed a huge increase in non-cigarette tobacco to help balance her troubled state's budget. Under her plan, cigars, snuff and rolling tobacco would face a doubled tax burden: from thirty-two percent, under current law, to sixty-four percent. And unlike in Ohio, this proposal is coming from a Governor. Granholm suggested a similar measure in 2007, which was killed by the state's Republican-dominated Senate. However, that was before the current economic crisis.

This news comes hard on the heels of the first major federal-excise-tax increase on tobacco in over ten years. Recent increases in funding for child health care will be paid for, partly, from a relatively large increase in taxes on cigars, cigarettes, and loose tobacco.

Other cash-strapped states contemplating similar measures include Pennsylvania, Arkansas and Kentucky. On the other side of the loophole, meanwhile, Oregonians may soon face a sixty-cent-per-pack increase on cigarette taxes, with supporters telling newspapers that they're confident the measure (also rejected in 2007) will pass this legislative season. Mississippi lawmakers are similarly confident about their proposed cigarette-tax increase, which will raise rates from eighteen cents per pack (the third-lowest cigarette tax in the nation) to a dollar even. The measure has already passed the Mississippi House while a more modest increase (to forty-nine cents) has cleared the Senate; negotiators have until the end of March to broker a deal. Other states with cigarette tax increases in the works include Utah and possibly North Carolina, where polls find a majority of adults support such an increase. Wisconsin governor Jim Doyle is pushing for a seventy-five cent increase--little more than a year after a dollar increase took effect in January 2008. (Doyle's supporters concede that he may be overplaying his hand.)

Maybe, when you add it all up, it's still a little safer--tax-wise--to smoke cigars after all, loophole or no loophole. It's certainly tastier.

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